Simplification is a beautiful thing for those of us who ponder investing. So much so that Thoreau indirectly alluded to it in Walden, “Simplicity, simplicity, simplicity! I say, let your affairs be as two or three, and not a hundred or a thousand; instead of a million, count half a dozen, and keep your accounts on your thumb nail.”
Thoreau’s argument for simplicity back then is based on the same observation we would make today concerning investment strategies: “Our life is frittered away by detail.”
While some would hasten to call this piece of wisdom well ahead of its time, it’s good to be reminded that truth is often universal no matter the timeframe; therefor the idea of naked simplicity rings true in our investments today more than ever. In his lengthy argument to tone down life’s complexities, the American philosopher argues the all too common fact that we allow ourselves to become so overwhelmed by the myriad details of life—what we own and how we must care for it—that we miss out on the most important and essential matters of our existence.
The takeaway is this: the more complex your investments, the less time and energy you’ll have to devote to them. The plain fact is that there really can be too much of a good thing, and your time is a treasured commodity you cannot ever recover. Once it’s spent, it’s irrevocably lost forever.
So if you agree that our lives should not be “frittered away” then it’s time to consider a few small steps anyone can take to simplify one’s investment strategies thereby creating a future that’s even brighter in terms of opportunities, plans and actions.
1) Consolidate All of Your Accounts
This goes without saying, but we’ll say it anyway: the fewer accounts requiring your attention—recordkeeping and reconciliation and all that goes with it—the better it is for your state of mind and your financial status. If your current finances do not mandate having accounts that exceed FDIC limits, why would you want to make things more complicated by having multiple checking and savings accounts, as well as needing to oversee dozens of IRAs?
Making things simpler includes the idea of rolling over your existing 401(k) accounts from former employers as well as consolidating any retirement accounts where possible. Likewise, it can also be an excellent downsizing tactic just having a single custodian or manager who monitors your funds. This move alone can help eliminate some of the many fees that are paid out in administration and management costs.
2) Get Yourself an Investment Advisor
An investment advisor will play a key role in your financial future by helping you clearly see where you stand monetarily and what you must do to get your finances to the place you desire. Independent planners can offer many benefits over the do it yourself (DIY) approach because they have specialized training and skills in an entire gamut of financial matters. Just as it’s difficult to be objective about oneself, it’s equally hard to view one’s finances in a detached and analytical way, yet your advisor can bring this perspective to the table. With a lack of emotion you might not be able to muster, an investment planner can help steer your decisions as rationally as possible.
3) Chart Your Investment Course
You have today, but tomorrow may never dawn. If you haven’t yet created a plan then you’ll want to rectify that oversight just as fast as possible. Now is the time. Just as a boat goes nowhere until it’s steered toward harbor, you cannot reach your financial destination if you haven’t even figured out where it is. Check the tide, watch the winds, map it out and make some headway.
4) Write Your Plan for Yourself
To continue with the nautical terminology, once you’ve charted your destination and put out to sea, the only course worth following is one that’s in writing. This benefits you as well as anyone who is assisting you—eliminating the guesswork. Whenever it appears you’ve gotten off track, revisit your plan to ensure the destination is always getting closer.
5) Always Remember: Less is More
In today’s technological environment, the idea of going on a 24-hour market watch may sound appealing, but the siren song of having access to all that data will rob you of precious time and energy. Instead of running after every bigger and better stock buy you encounter, consider the road less travelled (the road less complex) and invest in low-cost, low-maintenance mutual funds. Relax, sit back and watch your money grow. What could be easier and more simple than that? The less time you must invest in your financial oversight is more time you can devote to life’s other important matters.
6) Automate, Automate, Automate
Any non-automated process can fail should it fall victim to time or human error. Why manually move money between accounts when you can automate the process with payroll deductions for 401(k) and other retirement plans? Configure your checking account to send money to your various funds on a monthly or quarterly basis, automatically. Look for ways to make investing as low maintenance and pain-free as possible and then let the money slowly and consistently grow while you’re off enjoying life’s other important matters. After a while, you may be surprised to realize just how quickly your funds are accumulating, how much your investments are paying off and how easy the whole process was because you put everything on autopilot.
7) Trust Your Instincts
If it doesn’t feel right, don’t make the investment. Period. End of discussion. This is a level of discernment you’ll have to develop for yourself, but don’t be afraid to do so. Likewise, do not be timid when you feel old investments are no longer working out for you. It’s your money and your time. Make sure each investment is one that reflects your unique, personalized goals and values.
8) Investments: The What and Why
Do not succumb to the temptation to hold onto an investment for purely sentimental reasons. When you create the initial venture you should always annotate your reasons for doing so. If an investment is no longer living up to its original purpose, let it go. Trust your reasons for initially going after it in the first place and when that changes, make the necessary adjustments. One poor performer, held onto for no reason other than pure emotion, can lead you to having an entire portfolio of worthless transactions.
At the end of his life, Thoreau’s last words were “Now comes good sailing.” Keep your investments simple and your strategies easy to follow so that you’ll enjoy your finances long before the end comes, and so that you may be able to gift the excess to those deserving.